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We're under a lot of pressure, but is our company insolvent?

So how do you know if your business is insolvent? You may have studied the warning signs pages and learned that apparently insignificant issues can lead to business failure when combined.

Read this page and it will tell you whether the company is insolvent or not.

If the company is insolvent, you must act to MAXIMISE CREDITORS INTERESTS. Failure to do so could lead to personal liability for the company's debts.

So if you need urgent help - call us now on free call 0800 970 0539 or email our advisors on help@ksagroup.co.uk

The cashflow test for insolvency

Simply - can the company pay its debts when they fall due?

For example, if you are not paying the deductions from employees for NIC and Income Tax across to HMRC on the 19th of the month following the month they were deducted, then the company could be insolvent. This has of course now changed as a result of RTI in that PAYE is paid across to HMRC in real time. However, the company may have built up arrears in the past.

If your trade creditors sell to you on say 30 days terms and you regularly pay on 90+ days, then this could mean the company is insolvent.

A director has a legal requirement to understand this issue. If they believe that the company has insufficient cash to pay its liabilities on time then they must take advice/action.

So if the company is insolvent you must act to MAXIMISE CREDITORS INTERESTS. Failure to do so could lead to personal liability for the directors. Call now if you have questions - 0800 9700539 or 020 7887 2667 or 01289 309431

The balance sheet test for insolvency

Simply - do you owe more than you own as a company, or are the company's assets exceeded by its liabilities? If yes, then the company could be insolvent.

It is important to point out that this test should include contingent or prospective liabilities. These might be where a court is yet to make a decision on how much the company owes as a result of a court action or dilapidations on a building your business is due to vacate. (If you need advice on these issues email us at help@ksagroup.co.uk).

Many directors tell us that on a balance sheet test the company is not insolvent therefore they do not need to act. However, under the cashflow test above the company may still be insolvent. So you must act if it is.

In our experience, an apparently solvent balance sheet may include items that are overstated, such as obsolete stock and work in progress, or debtors that are not really collectable. After deducting these items many balance sheets become insolvent. So be prudent - you are legally required to present accounts to show a true and fair picture of the business.

So if the company is insolvent you must act to MAXIMISE CREDITORS INTERESTS. Failure to do so could lead to personal liability for the directors. Call now if you have questions - 0800 9700539 or 020 7887 2667 or 01289 309431.

The legal action test for insolvency

If a creditor has obtained a County Court Judgment, this may demonstrate the company's insolvency and the creditor might petition to wind up the company. (See compulsory liquidation).

If a creditor has obtained a statutory demand for greater than £750 and it remains unpaid for more than 21 days, then the creditor may petition to wind up the company.

If you believe that any of the above tests are positive for your business, it is vital that you and the board of directors take action to address the insolvent position. However, don't panic. Look carefully at all pertinent issues and consider the rest of this website.

Remember, if the company is insolvent, you must act to maximise creditors interests. If there is no reasonable prospect of the following happening then the directors may be accused of wrongful trading.:

New or additional capital or finance being introduced to the business to return the balance sheet to a solvent position or to remove the cashflow pressures.

A sale or acquisition of the company

A company voluntary arrangement or administration

So how do you know if the business is insolvent? What are the tests? Watch our video and it will tell you how to check if your company is insolvent or not.

So if the company is insolvent you must act to MAXIMISE CREDITORS INTERESTS. Failure to do so could lead to personal liability for the directors. Call now if you have questions - 0800 9700539 or 020 7887 2667 or 01289 309431